Market Perspective 11/7/2008

Today the unemployment rate for October 2008 was announced at 6.5%. As I said in previous post, I would have been pleasantly surprised if the number was below this and disappointed if the number turned out to be above this. To me, this number shows the pace of the deterioration in the economy has accelerated a bit. We are probably on pace for a peak unemployment rate of about 8%. I would expect this to occur sometime in the first half of 2009. I would expect an unemployment rate of 7% by the end of 2008.

There has a been a lot of news recently about the CEOs of the big 3 U.S. automakers going to Washington looking for bailout money. Basically, they will go bankrupt if they dont get some kind of monetary assistance from the government. Obama responded appropriately by saying he would support assistance but not w/out strings attached in the form of higher fuel efficiency standards, retooling for alternative energy, etc. I do not support handing over money to the U.S. automakers w no strings attached. These companies have proven time and time again they are not capable of running themselves. This industry is a real disaster. It's a real shame this industry is too big to fail b/c that's exactly what I would let it do if the consequences were not so disastrous. We really have no choice but to help. In return we should inflict some real consequences on the incompetent management at these companies and also force them to transform themselves into an industry that helps the country reduce our dependence on foreign oil. The failure of the U.S. automakers is a disgrace given they are asking for money yet again.

As you might tell, the issue of the U.S. automakers is a sensitive one for me.

My $0.02. on that one.

Finally, the Dems have been talking about a second stimulus package for the economy sometime early next year. The size would be something like $500-600 billion w 50% in the form of middle class tax cuts and remainder as public infrastructure projects. I support this idea. Most studies show money from tax rebates is saved not spent on consumer goods so the money most likely would not have the desired effect on the economy, but the govt usually applies this method b/c it's the most direct. And if they spend the money it's probably on foreign-made consumer goods which means the most of the money will not stay in the U.S. if it's spent. The infrastructure spending is good b/c it keeps the money here, creates jobs, and helps to keep our roads, bridges etc. working but the drawback is that it takes a while to have the desired effect. I still support the money for infrastructure as I think it would be more effective at this point. In the end, there will be a mix of both types of stimulus, but the size of the package seems like it will be big.